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Signed, sealed and delivered?

21st Sep 2007
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Once you’ve decided to outsource it’s the contract that seals the deal. But what essentials should you include to make sure you’re getting the best deal with a partner who won’t welsh on the quality? Louise Druce finds out.

photo of a contract

By Louise Druce, features editor

Contracts are the cement in the foundations of a good outsourcing relationship but it’s all too easy to get bogged down in the fine print and costs. Fail to be flexible and you could find cracks in the relationship start to appear after the ink is barely dry.

Outsourcing contact centres used to be all about getting things done as cheaply as possible but it’s now slowly maturing into a market where quality is the top priority. Unfortunately, a lot of firms are still not factoring in this change, making it hard to build contracts that align business priorities with what the customer wants.

“The outsourcing industry is on the brink of radical change,” says Mel Camilleri, account director at contact centre specialist Merchants Consulting. “New geographies are opening up, the pre-packaged processes on offer are being standardised and their creation industrialised; and the onus for managing many tiers of contracts and sub-contracts is, in many cases, shifting to clients.”

So what are the basic elements needed in a contract to get the best out of the relationship? Camilleri breaks it down into seven key points: purpose, scope, metrics, management, phased implementation, risk management/accountability and outsource expertise.

Seven deadly wins

First, the company needs to identify exactly what is being outsourced and why. This means current costs and systems also have to be understood. Next, the scope of the project has to be defined – is it desktop level user support, specific systems, call centre support, are telecommunications included, etc.

Top three legal considerations

1. Make sure contracts contain SLAs - clear service level agreements are vital to ensure both parties know what to expect in terms of quality, quantity of service and auditing and administrative detail

2. Consider termination from outset - while customers may take as many precautions as possible to avoid problems with suppliers, termination or renegotiation may be necessary. A contractual exit strategy and consideration of the legal issues can make the transition to a new supplier smoother.

3. Keep information secure - when outsourcing, a large amount of data inevitably leaves the company and is handled by people outside. Make sure there are provisions to keep intellectual property safe and that sanctions can be taken if it becomes compromised.

Source: Addleshaw Goodard

When it comes to adding metrics, analysis of current operational metrics versus the desired ones is the best method. Firms also need to ensure simple metrics, such as 75 percent case closure rate on the first call, include contract language.

Management may be the most obvious point to reference but accountability must be maintained in order to ensure operations occur with a high-degree of competency. Implementation should then be phased. Camilleri recommends starting at the top and working down in both architectural and business organisation terms. They will have the greatest impact on operations but it means problems with the outsourcing management or systems are identified and resolved early on.

When drafting the accountability clauses, firms need to consider the contractor’s potential impact on business operations. For example, a three-day firewall outage might result in a few pounds off the contract fees with most standard IT service provider contracts but the cost to the your company for losing internet communications could be much higher.

Finally, if necessary, it may be a good idea to outsource a third party to perform the IT outsourcing research implementation. As Camilleri puts it: “This will be far more effective than a botched contract.”

Squeezing out extra value

There is extra room for manoeuvre by way of added-value services, which are figuring more in contracts. “Clients are increasingly seeking partners who can transform the nature of their contact centre operations, not just deliver a prescribed set of processes in a prescribed fashion on a client-owned system,” explains Neil Robinson, head of client management, financial services, at outsourcing expert Convergys.

“Allowing a capable third party to make the most of deep understanding of customer relationship management can deliver step-changes in performance and cost.”

The kind of services starting to appear include the ability to switch locations or providers, and leveraging agent skills and availability to improve profitability; delivering standardised processes and enabling virtual contact centres to improve effectiveness; increased adoption rates of new technologies and home agents to improve innovation, and even provisions to reduce the company’s carbon footprint.

Offshoring brings its own set of variables. Language, culture, working hours, holidays, government and staff turnover are just some of the issues that need to be tackled. According to Ian Sampson, partner at law firm Addleshaw Goddard’s technology and outsourcing division, offshoring firms should also be aware of how and where any disputes with the contractor that might arise can be resolved, whether they can comply with data protection obligations overseas and the implications of winding down an overseas offshoring.

When all the finer points of any contract have been hammered out, there also needs to be some form of cost control built in, even if cost reduction is not the main outsourcing driver. “Cost control can be as extreme as having ever-reducing fees (a kind of continuous improvement approach) to having a clear change control process enabling a sensible discussion of the effects of business change,” says Sampson.

“It is probably best achieved by ensuring there is a clear understanding in the contract as to what service levels will be delivered for the fees. The risk of simply focusing on cost and not service and change is that the outsourcer will find ways of achieving your cost requirements, often at the expense of the customer experience.”

The cost of managing the contract itself is also sometimes overlooked, yet it can be as high as 5-9 percent of the contract value.

Hit or run?

Some relationships are destined to fail whatever you do. If there is a breakdown in communication and services are not up to par, there is the option of renegotiation. Most companies prefer to go down this route, even if they would rather switch supplier, to avoid a blow to the coffers.

"The risk of simply focusing on cost and not service and change in your contract is that the outsourcer will find ways of achieving your cost requirements, often at the expense of the customer experience." Ian Sampson, partner at Addleshaw Goddard’s technology and outsourcing division

If there really is no other choice than to say adios, solid exit provisions are vital. “The customer must ensure it has the technical and legal ability to recover the outsourced services from the provider, either back to an internal function or to an alternative provider,” Camilleri cautions.

“The need to regain control of the services could arise on an early contract termination or on the expiry of the original term of the outsourcing contract. In either case, it must provide details for the way in which services and the underlying assets will be transferred from the original service provider to its successor or to the customer.”

Overall, having a solid contract will certainly help guide companies through the complex switch to outsourcing but sticking to it religiously can also have its disadvantages. Sampson says if rigid adherence could give rise to issues, he would prefer to address this through change control rather than deciding not to enforce the contract in certain areas. The further the contract is removed from what is happening on the ground, the greater the risk of bigger problems down the line.

“With some imagination, the contract can provide a good framework for the parties to develop and integrate their working relationship. But it is a framework – there is only so much success that can be achieved by contractually forcing parties to do something,” he adds,

“There needs to be a willingness between the parties to invest in enhancing the relationship.”

Building strategic contract relationships

• Hire a partner, not just a provider: look for an outsourcing provider that brings a wide set of skills and strengths and a long term track of delivering results in addition to competitive pricing.

• Build in broad business outcomes early and often: incorporate business outcomes as performance measure from the outset of the arrangement.

• It’s more than just a contract, it’s a business relationship: give as much attention to performance measurement and the quality of your relationship with your provider as you do to the contract.

• Leverage gain sharing: use risk/reward provisions as incentives for higher performance outsourcing.

• Active governance: use active governance to manage the outsourcing relationship for maximum performance.

• Assign a dedicated executive: task your talented executives with the mission of optimising your outsourcing arrangements.

• Focus on primary objectives: be clear about objectives – cost, process improvement and the ability to focus on the core business.

Source: Merchants Consulting

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